Braskem buying Dow's PP business

MIDLAND, MICH. (July 27, 2:40 p.m. ET) — Brazilian plastics giant Braskem SA has made another big move in the polypropylene market, this time acquiring the PP business of Dow Chemical Co. for $323 million.

The deal makes São Paulo-based Braskem the largest PP producer in North America, and includes two U.S. plants and two in Germany, with total annual capacity of 2.3 billion pounds, the company said July 27.

A spokesman with Midland, Mich.-based Dow confirmed the sale July 27. He also said the sale price was 6.7 times annual earnings before interest, taxes, debt and amortization for the business.

Officials had confirmed in late May that Dow was shopping around its PP resin, licensing and catalyst businesses. The confirmed sale does not include Dow’s PP catalysts unit.

Dow produces PP at its complexes in Freeport, Texas, and Seadrift, Texas. According to Braskem, the two U.S. plants will increase its PP capacity by 50 percent in the region to an annual production capacity of 3.1 billion pounds.

The two plants located in Germany, at the petrochemical complexes of Wesseling and Schkopau, have annual capacity of 1.2 billion pounds of polypropylene.

“The acquisition of Dow's assets consolidates our leadership in polypropylene in the U.S., the largest thermoplastic resins market, and it also enhances our current position in Europe, an important market for our biopolymers strategy,” said Braskem CEO Carlos Fadigas, in a news release.

“In addition, as our second acquisition in the U.S., this transaction will enable Braskem to capture approximately US$140 million in synergies (net present value) through a more diversified portfolio, a more leveraged fixed cost base and working capital, logistics and supply optimization,” he added.

The deal is scheduled to close by the third quarter, pending regulatory approvals. Last year, Braskem acquired the PP business of Sunoco Inc. - including plants in Pennsylvania, West Virginia and Texas - for $350 million in cash.

For Dow, it’s the firm’s third major move in less than two weeks. The firm first announced plans to build a major bioplastics plant in Brazil in conjunction with Mitsui & Co. Ltd. of Japan. Dow then followed up with an even bigger bombshell - plans to build a $20 billion plastics and chemicals complex in Saudi Arabia through a joint venture with national firm Saudi Aramco Inc.

The acquisition comes at an interesting time for the North American PP market, which has been rocked this year by extreme price volatility and a demand drop of almost 5 percent in the U.S. and Canada through May.

Increased use of natural gas feedstocks has reduced the amount of propylene monomer available to make PP in the region. Natural gas-based ethane feedstocks make less propylene per unit that feedstocks based on crude oil-based naphtha do.

Earlier this year, PP market analyst Esteban Sagel said that the North American PP field now features high production costs, high prices and reduced demand, but improved profit - a far cry from the low production costs, low prices and fast-rising demand it had seen from 2000 to 2007.

Sagel - who’s with Chemical Market Associates Inc. in Houston - added that he expects North America’s PP prices to be the highest in the world into 2013, even with much expected volatility. Sagel said he expects North America’s prices to line up with those elsewhere in the world later in the decade.

Scott Newell - a PP market analyst with Resin Technology Inc. In Fort Worth, Texas - also said earlier this year that the ups and downs of the North American PP sector don’t appear to be going away anytime soon.

“We could see stretches of stability,” Newell said “In the meantime, we’re going to have to continue to manage our businesses and expect that there will continue to be volatility.”